How Tight is the Necessary Condition for the Second-order Stochastic Dominance?
The result's identifiers
Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F00216208%3A11320%2F20%3A10438175" target="_blank" >RIV/00216208:11320/20:10438175 - isvavai.cz</a>
Result on the web
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DOI - Digital Object Identifier
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Alternative languages
Result language
angličtina
Original language name
How Tight is the Necessary Condition for the Second-order Stochastic Dominance?
Original language description
The paper deals with the second-order stochastic dominance relation and its necessary conditions. Assuming a discrete distribution with many atoms, the second-order stochastic dominance implementation in portfolio optimization is extremely computationally costly, especially if atoms are not equiprobable. On the other hand, there exist necessary conditions for this relation (based on comparisons of mean and minimal realization) which are easy to apply. Therefore, this paper explores the strength of these necessary conditions when considering financial data. In particular, daily returns of 49 industry portfolios from the Kenneth French library from the last 50 years are analysed. First, the number of pairs of portfolios fulfilling the necessary condition is calculated. Second, the number of pairs obeying also the second-order stochastic dominance is identified. Finally, the dependence between the strenght of the necessary condition and correlation (average mean return) of portfolios is investigated. The whole empirical analysis is performed using annual moving (non-overlapping) window approach.
Czech name
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Czech description
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Classification
Type
D - Article in proceedings
CEP classification
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OECD FORD branch
10103 - Statistics and probability
Result continuities
Project
<a href="/en/project/GX19-28231X" target="_blank" >GX19-28231X: DyMoDiF - Dynamic Models for the Digital Finance</a><br>
Continuities
P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)
Others
Publication year
2020
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů
Data specific for result type
Article name in the collection
38TH INTERNATIONAL CONFERENCE ON MATHEMATICAL METHODS IN ECONOMICS (MME 2020)
ISBN
978-80-7509-734-7
ISSN
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e-ISSN
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Number of pages
6
Pages from-to
301-306
Publisher name
MENDEL UNIV BRNO
Place of publication
BRNO
Event location
Brno
Event date
Sep 9, 2020
Type of event by nationality
EUR - Evropská akce
UT code for WoS article
000668460800046